New Evidence on Cyclical Variation in Labor Costs in the U.S.
Employer-provided nonwage benefit expenditures now account for one-third of U.S. firms' labor costs. We show that a broad measure of real labor costs including such benefit expenditures has become countercyclical during 1982-2014, contrary to the conventional view that labor costs are procyclical. Using BLS establishment-job data, we find that even real wages, the main focus of prior literature, have become countercyclical. Benefit expenditures are less rigid than nominal wages, although both components of labor costs have become more rigid. These rigidities, along with the rising relative importance of aggregate demand shocks (including the financial crisis), help explain countercyclical labor costs.
We are grateful for the BLS's provision of the dataset and for Thomas Moehrle's incredibly helpful assistance. We thank numerous seminar participants and colleagues, especially Eric Swanson and Maury Gittleman, for their helpful comments and Kaiwen Wang for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Grace Weishi Gu & Eswar Prasad & Thomas Moehrle, 2020. "New Evidence on Cyclical Variation in Average Labor Costs in the United States," The Review of Economics and Statistics, vol 102(5), pages 966-979.